1. The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 18 percent a year for the next 4 years and then decreasing the growth rate to 3 percent per year. The company just paid its annual dividend in the amount of $2.50 per share. What is the current value of one share of this stock if the required rate of return is 8.00 percent?
$85.93
$102.35
$99.85
$73.39
$88.43
2. Sprockley Company has just paid a $1 per share dividend. It is expected that dividends will grow at 16% per year for the next 2 years, at 10% the third year and 8% in year 4. After that, dividend growth is expected to be 3% per year forever. Sprockley’s equity ? is 0.9. If Treasury bills yield 5% and the market risk premium is 8.3%, what should be Sprockley’s current stock price?
$10.00
$12.05
$15.00
$42.00
$45.75